Letters of intent: their highest and best use is disavowing a binding contract

A letter of intent — aka an LOI, sometimes known as a memorandum of understanding or MOU — is the equivalent of comfort food; it’s something you can show your boss to reassure her that the transaction you’re supposed to make happen is moving forward.

The most useful function of a letter of intent, though – arguably its only proper function – is to make it clear that the parties do not intend to enter into a binding contract at that time — that they will do so only through a formal, signed, final written agreement. That makes it more difficult (although not impossible) for one party to claim later that the parties had reached an oral agreement.

ADDED 7/1/09: See Letters of intent: Use with caution!, Weightmans Commercial Property Focus [UK], May 2009 (summarizing case in which court held LOI to be a binding contract, not just a precursor to one).

See also: (list is automatically generated)

• LOI Disclaimer Clause Rescues Investment Bank
• Contractor’s continuing to work under an expired LOI results in not getting reimbursed for termination expenses
• An oral understanding might not get you off the hook for a written contractual obligation
• Take a lesson from Indiana Jones: Never threaten to sue – either do it, or don’t
• Cease-and-desist letters: Five ways to keep your client and yourself from looking foolish

Tagged as: Letter of intent, LOI, Memorandum of understanding, MOU